Woodward(WWD) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Net sales for Q3 2024 were $848 million, a 6% increase year-over-year [22] - Earnings per share for Q3 2024 were$ 1.63, compared to $1.37 in the previous year [22] - Aerospace segment sales for Q3 2024 were$ 518 million, an 8% increase from $481 million in the previous year [22] - Industrial segment sales for Q3 2024 were$ 330 million, a 3% increase from $320 million [23] - R&D expenses for Q3 2024 were$ 39 million, or 4.6% of sales, compared to $35 million or 4.4% of sales in the previous year [25] - SG&A expenses for Q3 2024 were$ 74 million, or 8.7% of sales, compared to $65 million or 8.1% of sales [25] - The effective tax rate for Q3 2024 was 16.4%, down from 20% in the previous year [25] - Total net sales for 2024 are expected to be between$ 3.25 billion and $3.3 billion [26] - Aerospace sales growth for 2024 is expected to be 12% to 14%, with segment earnings at approximately 19% of sales [26] - Industrial sales growth for 2024 is expected to be 11% to 13%, with segment earnings at approximately 17.5% of sales [26] - Adjusted free cash flow for 2024 is expected to be between$ 300 million and $350 million [26] Business Line Data and Key Metrics - Aerospace segment earnings for Q3 2024 were$ 102 million, or 19.7% of segment sales, compared to $83 million or 17.3% in the previous year [30] - Commercial OEM sales in Aerospace were up 2%, while commercial aftermarket sales were up 19% [22] - Defense OEM sales were down 4%, while defense aftermarket sales were up 22% [22] - Industrial segment earnings for Q3 2024 were$ 60 million, or 18.1% of segment sales, compared to $58 million or 18.2% in the previous year [32] - Power generation sales in the Industrial segment increased by 8%, while transportation sales increased by 3%, and oil and gas sales decreased by 6% [24] Market Data and Key Metrics - In Aerospace, strong commercial, domestic, and international passenger traffic continues, though some airlines have discussed overcapacity in the US domestic market [15] - Aerospace aftermarket activity remains healthy due to high utilization of legacy aircraft and engines [18] - In Industrial, rising global power demand is driving increased investment in gas-fired power generation [19] - US natural gas production continues to be pressured by low gas prices, but global demand for natural gas infrastructure remains strong [20] - The marine market remains healthy, with elevated ship-build rates driving OEM engine demand and high utilization rates fueling aftermarket activity [27] Company Strategy and Industry Competition - The company is focused on growth, operational excellence, and innovation, with a technology roadmap aligned with evolving customer requirements [10] - Woodward has invested in R&D and new product development, including advanced low-profile hydraulic controls for Boeing's X-66 aircraft [11] - The company is also investing in component design and materials compatibility for control systems delivering alternative fuels like hydrogen, ammonia, and methanol [12] - Woodward has established a state-of-the-art P2X Research Center in Stuttgart, Germany, to test hydrogen-compatible components for Airbus's Zero-E hydrogen-powered aircraft demonstrator [13] - The company is working on an advanced fuel control system for next-generation aircraft engines, aiming for a 50% reduction in weight and volume compared to current fuel systems [14] Management Commentary on Operating Environment and Future Outlook - The company is monitoring the lack of synchronization across the aerospace supply chain, which is creating part shortages and inventory build-ups [15][18] - Management expects the industrial sales growth to moderate due to lower China on-highway orders, particularly in the natural gas truck business [27][34] - The company remains confident in delivering on the revenue range for Aerospace despite supply chain issues [34] - Management is focused on reducing lead times and improving flow through lean transformation efforts [18] Other Important Information - The company has temporarily in-sourced thousands of parts to allow suppliers breathing room to recover [17] - Woodward has invested in additional rapid complex machining centers to provide more capability and flexibility [17] - The company returned$ 348 million to stockholders in the form of dividends and share repurchases during the first nine months of 2024 [33] Q&A Session Summary Question: How are commercial aftermarket bookings performing? - The company does not disclose book-to-bill ratios for aftermarket, but bookings are strong, with commercial aftermarket sales up 19% in Q3 2024 [37] Question: What is the outlook for the China natural gas truck business? - The China natural gas truck business is expected to lose money in Q4 2024, with sales projected to be between $10 million and$ 15 million, resulting in negative margins [40][42] Question: How is the company managing inventory in the aerospace supply chain? - The company is closely monitoring inventory build-ups and working with customers to manage smooth flow through operations [64][71] Question: What is the impact of share repurchases on the share count? - The company repurchased $300 million of stock in Q3 2024, which helps offset dilution from compensation programs and options exercises [46][48] Question: What is the outlook for industrial margins excluding China on-highway? - Excluding China on-highway, industrial margins are expected to be around 14% [41][97] Question: How is the company managing supply chain disruptions in aerospace? - The company is not currently a bottleneck in the aerospace supply chain and is largely on time with deliveries, though some customers have asked to push out deliveries to manage inventory levels [89][90] Question: What is the breakeven point for the China on-highway business? - The breakeven point for the China on-highway business is around$ 35 million to $40 million in revenue [98][101]